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"Food, water and energy security are increasingly bigger issues, and as governments, businesses and other players struggle to adapt to and mitigate drought conditions, there will be an evolving set of opportunities and risks for investors."

The ongoing drought is the worst in the United States since at least
1956, with 63 percent of the lower 48 states suffering drought
conditions at the end of August. While conditions are far from those in
the Dust Bowl years of the 1930s, drought conditions are the new normal,
according to “Global Drought – Opportunities and Risks,” a new BofA
Merrill Lynch Global Research report. It follows thematic megatrend
reports from BofA Merrill Lynch Global Researchon obesity,
energy efficiency, and safety and security.

The U.S. and global drought underscores increased long-term challenges
to global food, water and energy security, as demand for food and energy
each are expected to climb 50 percent by 2030 with the demand for water
growing by 40 percent over the same period, potentially creating a
perfect storm of interlinked challenges.

These changing conditions pose a range of opportunities and risks for
investors. For investors interested in the themes of fighting drought
and in promoting food, water and energy security, Bank of America
Merrill Lynch has introduced a screen that identifies liquid stocks
exposed to global drought-related themes under the Bloomberg ticker
MLEIARID. The stocks included in the screen are those that it considers
to be long-term solution providers in such areas as water, fertilizers,
crop science, energy efficiency, second-generation biofuels and
renewables.

“The severity of the global drought underscores the long-term challenges
for national and global economies,” said Sarbjit Nahal, equity
strategist with the Bank of America Merrill Lynch Global Research ESG
(Environment, Social and Governance) and Sustainability Team and a
co-author of the report. “Food, water and energy security are
increasingly bigger issues, and as governments, businesses and other
players struggle to adapt to and mitigate drought conditions, there will
be an evolving set of opportunities and risks for investors.”

The report, prepared collaboratively by the firm’s Global Strategy,
Commodities, Economics and sector teams, incorporates research and
insights from a wide range of resources within the Global Research
franchise.

Commodities are experiencing immediate impacts from the drought, with
all key agricultural commodity markets having tightened dramatically on
the deteriorating outlook for supply. The immediate result is high
prices. Corn and soybean prices are expected to stay elevated in the
near term. Although further spikes cannot be ruled out, grain prices are
expected to cool off by mid-2013. In the U.S., the government could
issue a temporary waiver of its ethanol-blending mandate, which could
alleviate the tightness in the corn market, since 40 percent of U.S.
corn is used to produce ethanol.

In the agricultural and chemicals sectors, there are short-term
opportunities and risks. Providers of agricultural inputs such as seeds,
fertilizers and crop-protections chemicals stand to benefit from
increased incentives for growers to maximize production. As a result,
there are attractive investment opportunities in all major regions of
world.

In the consumer sector, weather conditions should have minimal impact on
packaged foods. There could be some low- to middle-single-digit cost
impacts on certain European Union members in 2013, negative impacts for
agribusiness companies and higher grain prices that could test the
pricing power of food companies.

In the industrials and insurance sector, drought conditions are actually
a positive for farmers as soft commodity price increases more than
offset production decline and help extend the global agriculture cycle.
According to disaster modeler AIR Worldwide, the drought could cause
losses of $1-3 billion after recoveries, a manageable event for crop
insurers and their reinsurers.

Economic consequences of the drought should be muted in the U.S.

Although the drought is likely to curb farm production and boost food
prices, the macroeconomic impact should be limited in the U.S., since
the farming industry is a small share of the economy and higher crop
prices are only partially passed through into processed food prices. The
drought should not affect the overall outlook for the economy in the
coming months.

The global impact of weather conditions, including a possible El Niño,
should be similarly moderate, with limited, but generalized, upward
inflation pressures resulting from an increase in grain prices. The
effect will be greater in global emerging markets, since food prices
command a bigger share of expenditures there than in developed
economies, but that should be limited to a one-time spike in inflation.

The impact should be similarly moderate in the growing Chinese and
Indian economies. As China becomes wealthier, higher meat consumption is
likely to push corn imports sharply higher due to animal feed demand,
with resultant tightening of prices. In India, an autumn harvest drought
could slow growth to 5 percent for the second half of 2012, but
projected late rains should protect next summer's crop and avoid an
impact in 2013.

BofA Merrill Lynch Global Research

The BofA Merrill Lynch Global Research franchise covers more than 3,300
stocks and 1,060 credits globally and ranks in the top tier in many
external surveys. Most recently, the group was named Top Global Research
Firm of 2011 by Institutional Investor magazine; No. 1 in the 2012
Institutional Investor All-Asia survey for the second consecutive year;
and No. 2 in the 2012 Institutional Investor All-China, All-Europe,
All-Japan and All-Latin America surveys. The group was also named No. 2
in the 2012 Institutional Investor All-America Fixed Income survey, as
well as in the inaugural Institutional Investor Emerging Markets Equity
and Fixed Income survey, covering Emerging Europe, Middle East and
Africa.

Additionally, BofA Merrill Lynch Global Research was named the No. 1
Global Broker by Financial Times/StarMine, as well as ranking No. 1 in
the U.S. and Europe and No. 2 in Asia. The group was also named No. 1 in
Asia and No. 2 in the U.S. in the Wall Street Journal Best on the Street
2012 Analysts Surveys. The group was also the winner of the Emerging
Markets magazine’s EM Research Global Award for 2010 and 2011.

Bank of America

Bank of America is one of the world's largest financial institutions,
serving individual consumers, small- and middle-market businesses and
large corporations with a full range of banking, investing, asset
management and other financial and risk management products and
services. The company provides unmatched convenience in the United
States, serving more than 55 million consumer and small business
relationships with approximately 5,500 retail banking offices and
approximately 16,300 ATMs and award-winning online banking with 30
million active users. Bank of America is among the world's leading
wealth management companies and is a global leader in corporate and
investment banking and trading across a broad range of asset classes,
serving corporations, governments, institutions and individuals around
the world. Bank of America offers industry-leading support to more than
3 million small business owners through a suite of innovative,
easy-to-use online products and services. The company serves clients
through operations in more than 40 countries. Bank of America
Corporation stock (NYSE: BAC) is a component of the Dow Jones Industrial
Average and is listed on the New York Stock Exchange.

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